December 26, 2011
China unlikely to buy corn unless prices drop sharply
Sitting on record harvest, China may import more corn only if global prices fall 19% to about US$5 a bushel, a level that is significantly below domestic prices, analysts said.
China's corn supply is sufficient after a record harvest and the government may import to boost stockpiles only if there is a "clear price advantage," experts said.
Corn, used as an ingredient in feed and in ethanol, has plunged 20% since August 31 on high global grain supplies and concerns that Europe's deepening debt crisis and a slowing global economy may sap demand.
China may get the "best chance for corn at value" if it imports in February, when Argentina's crops are harvested, analysts said. Uncertainty about US planting usually drives up prices in April, analysts said.
China last made a big purchase around October 13, when the USDA announced sales of 900,000 tonnes. With harvests expanding from Argentina to China, prices will fall as much as 30% to US$4.305 a bushel in Chicago trading next year, according to the median of 24 analyst estimates compiled by Bloomberg News.
"China's government isn't in a hurry," analysts said, adding tat it has over 10 million tonnes stored from last year's domestic harvest, and has ordered four million tonnes of imports, which are enough to "control the market."
Corn for March delivery fell 0.3% to US$6.155 a bushel on the Chicago Board of Trade. End users in China would pay about RMB2,400 yuan (US$378)/tonne for US corn.
Prices at Shenzhen port, a leading indicator for southern China, were RMB2,420 (US$382)/tonne on December 21, so imports have no price advantage. At US$5 a bushel, US corn would be RMB2,100 (US$332)/tonne after arriving in China. Imports are subject to premiums, freight costs of about US$59 a tonne currently, a 13% VAT and 1% tariff, analysts said.
Prices in Chicago may average US$6.60 a bushel in the 2011-2012 marketing year, down from a previous estimate of US$7.25, according to Morgan Stanley. Corn may be "one of the weaker commodities in 2012," partly because of record supplies from South America in the first quarter, it said.
Corn prices in China will be "range-bound" between RMB2,200-2,400 (US$347-378)/tonne in the next few months, experts said.
China said December 19 it would buy domestic corn to support farmers. The policy effectively sets a price floor of about RMB2,200 in Dalian, the price-setting centre in China.
The upper range of next year's domestic price depends on feed demand from the livestock industry and corn processors, analysts said. The government may allow a gain of RMB100-200 (US$16-31) for increased production costs, he said.
Corn prices in Chicago slipped 1.9% last week after the USDA on December 9 raised China's corn output estimate for this year by about 7 million tonnes from a previous outlook to a record 192 million tonnes, in line with China's official estimate.
It's "a joke" that the USDA adopted this figure given China's limited yield and land, experts said. Yigu Information Consulting Ltd projected 170 million tonnes, compared with 166 million tonnes by Shanghai JC and 189.2 million tonnes by Geneva-based SGS SA.